Mauro Botta was born in Lecco, Italy. His mother was a real estate agent and retired when Botta was born. Botta’s father worked for a government-owned bank in Italy. Botta started first grade at four and a half years old, and his childhood consisted of a series of moves, as his father’s banking jobs demanded frequent postings. Botta graduated from the Catholic University of Milan with a degree in Banking, Finance, and Insurance Sciences.
Botta was recruited by PricewaterhouseCoopers LLC (PwC) shortly after his graduation and began working on December 9, 1999. Botta’s job title was External Auditor, and he “conducted audits to verify the financial statements of the companies that PwC was auditing by fairly representing the financial situation, economic and assets/liabilities of any company so that the published financials are fairly stated. We verify that it is the case.”
After five years with PwC Milan, Botta transferred to PwC San Jose, California, in 2004. San Jose PwC audited more public companies than their headquarters in New York because Silicon Valley is where many new public companies start. An auditor has personal and professional liabilities if they do not follow the code of conduct and the standards set forth for CPAs. An auditor “needs to act with integrity and ethics,” according to Botta.
Botta explained that after the Enron scandal, “The U.S. Government instituted the Sarbanes-Oxley Act of 2002, and they created an entity known as the Public Company Accounting Oversight Board (PCAOB). This agency is in charge of overseeing the ‘big four’; Deloitte, PwC, Ernst & Young (EY), Klynveld Peat Marwick Goerdeler (KPMG), and essentially what they do is audit the auditors.” Botta said. “They also issue auditing standards, and they make the rules for which audits for public companies should be conducted.”
All PCAOB rules and standards must be approved by the U.S. Securities and Exchange Commission (SEC). PCAOB also conducts audits of smaller firms because “their focus is on public companies.” Public companies are those traded on the stock market. Botta stated that the PCAOB noted that one audit out of four is noncompliant every year, so the failure rate that the “big four have is about 25%, and it could be higher. Generally, every single year the US Government is saying the experts, the top experts in auditing, the big four, cannot do a compliant audit 25% of the time.” Botta stated that 25% is a high rate and should be worrisome for the public.
The PCAOB issues a report on every firm they inspect by listing the issues the firm has, and, depending on the severity, the firm has time to remediate those issues. If the firm does not address those issues, the PCAOB will publish a second part of the report, which is not available to the public. The second part is more detailed and has more information. Botta stated the second part of the report is rarely published. He does recall cases when part two was published, “which does damage to the firm, and happens when they are not timely or seriously addressing those concerns.”
The problem is this happens every year. “Every year, consistently, the Government is saying the failure rate is pretty much around 25%,” Botta remarked. The fines and penalties the PCAOB and SEC have inflicted are almost non-existent. Because of what Botta found in auditing companies, he feels “the failure rate should be much higher.” Botta stated, “If the auditors are not doing documentation that reflects the reality, and if the only thing the Government can do when they inspect an auditor is read the documents, then the only way to discover false documents is to change the procedure.”
“Quite simply,” Botta said, “the Government Inspector looks at what the auditors do, and if the auditors write that they did all the procedures, and these are the results, the PCAOB has no way to know if that is true or not.”
From 2010 to 2017, Botta was a Senior Manager at PwC Assurance Practice in San Jose, California. He was responsible for ensuring internal controls were adequate in the companies PwC was auditing. Internal controls are the mechanisms, rules, and procedures implemented by a company to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud. An effective internal control system is a requirement of the 2002 Sarbanes-Oxley Act, which regulates reporting and testing internal controls over public companies’ financial reporting.
Botta saw problems in their PwC audits. He saw that the level of competency in some Silicon Valley companies’ management was insufficient to manage the companies.”The auditors are required to certify that the internal controls are operating effectively, and that depends on the competency of management. What is happening, what I uncovered is that, in my experience, are companies with incompetent internal controls run into problems with the numbers and don’t know how to fix the problem,” Botta said. Botta went on to explain that by the rules, the auditors should remain independent; they should not help the company fix the problems or the numbers. If the auditor does fix the issues, the auditor should report that the controls of the company are not working. What Botta found in some cases, however, was that the auditors were fixing the problems and reporting that the company fixed them.
Between 2012 to 2014, Botta noticed during audits of a company that there were “episodes involving the audit, the Company’s management, and the documentation that did not occur consistently.” When he raised his concerns with management, Botta was told if he continued with his objections, “most likely he would never make partner.” PwC advised one Company that Botta wanted to give them a “material weakness,” and the chief financial officer asked for Botta’s removal from the audit. PwC removed Botta.
Botta explained that he found that auditors overlooked internal control issues to curry favor with companies’ management and remain competitive in the market. He also said he found that auditors had breached their duty as public watchdogs by withholding valuable information from stakeholders, mainly in the area of internal controls.
In 2012, Botta worked on an audit where he noted a lack of transparency between PwC and the client, a lack of internal controls, or competent management on the client’s part. Later, PwC removed Botta from the audit of that client. PwC was concerned that Botta’s concerns would raise issues with the client.
Botta, who had previously never been removed from a job for performance issues or client complaints, found himself pulled a second time from another audit. Botta saw this as evidence of retaliation due to negative audits. Botta had noticed that a technical accounting manager at the audited Company did not possess the accounting skill or competency needed for a public company, noted it, and was removed.
At work, Botta was being downgraded for issues pertaining to “relationships.” Botta knew that PwC “was more interested in their auditors getting along with their clients rather than oversight.” Botta stated that “the pervasive evidence and modifications of work papers were obvious” in audits he did, as auditors had cleaned up clients’ work. He strongly feels that “everyone knows what is going on.” In 2016, Botta solicited a client to sign on with PwC, but PwC did not put Botta on the auditing team, which was unusual. Botta complained to human resources at PwC to no avail.
Botta then filed a complaint with the SEC in November 2016 about modifications of work papers and auditors doing work that company personnel should have been doing. Botta also revealed that PwC was trying not to flag problems with companies to keep corporate managers happy and avoid losing their business. Additionally, Botta supplied the SEC with a picture of PwC staff and clients in front of a plane. The company plane was being used to fly PwC staff to a PwC party. This photo was shown earlier to PwC staff as an example of “a great relationship with a client.” Botta feels the picture shows how PwC was too close to the clients they audited.
On April 28, 2017, the SEC notified PwC that an investigation was underway concerning Botta. On August 17, 2017, Botta received a notice of termination from PwC. Botta feels his termination was retaliation for his whistleblowing.
After being terminated, Botta got a job as a consultant. His first job as a consultant happened to be with a PwC client, and Botta said that PwC demanded that he be fired from this consultant job.
Botta believes the big problem is the “make-up of the PCAOB and the SEC come from the big four accounting firms.” Sometimes, like a revolving door, people leave the SEC or PCAOB and go back to the big four accounting firms,” said Botta. “This is a significant conflict of interest.” The individual that Botta made his complaint to at the SEC was a former employee of PwC, and later, left the SEC and went back to PwC.
Botta stated that the only institution he can appear in front of “to expose what the SEC and PwC is doing or is not doing, is Congress.” The SEC only reports to the Executive branch of the government, and oversight of the Executive branch is Congress. Botta has appealed to Senators to let him testify about this matter, to no avail. Botta also went to the California Board of Accountancy, who advised they did not have the workforce to investigate, and “it was too big to investigate.” Botta also discovered the President of the Board was a current PwC partner. Botta described it as an “incestuous relationship” between the big four accounting firms, PCAOB, and the SEC.
“Nobody, I believe, has an interest in blowing up the system, the system as it is, is a perfect mechanism, the only people who are damaged are shareholders who are unaware of what is going on,” Botta stated. “Right now, what you have are auditors that, instead of being independent, are helping management to keep their job and keep their bonuses. Management in return, hire and continue to hire the auditors, and nobody would ever know.”
Botta advised that when auditors and companies are too cozy, you have problems. For example, he explains “When Wirecard AG, a German payment processor, was missing 1.9 billion in euros in June of 2020. Accounting malpractice had been alleged since the early days of the company’s inception. One of the big four auditing firms was involved in the Wirecard scandal.”
Whistleblower complaints were instrumental in revealing the losses. There have been similar accounting malpractice scandals in India and Italy.
Another example of negligent auditing Botta gave is that Colonial Bank in Alabama. On August 14, 2009, the bank failed, and it was both the most massive bank failure in 2009 and the sixth-largest bank ever to fail in the United States. The bank’s failure cost the Federal Deposit Insurance Corporation’s (FDIC) Deposit Insurance Fund an estimated $2.8 billion. On December 28, 2017, a Federal judge ruled PwC was liable as the auditor and had to pay $335 million as a settlement. A former PwC chairman was quoted in a 2007 Wall Street Journal article saying that the “audit profession has always had a responsibility for the detection of fraud.”
PwC employs thousands of individuals, and Botta said he was the only one to step forward as a whistleblower. What motivated Botta to be a whistleblower was his ethics and integrity, which he considers most important of all personality traits. Botta said it was a simple matter of conscience, “simply what he had to do.” To sit in silence was not an option for Botta.
Botta said that after what PwC has done to him, he realizes that a whistleblower has to be ready to face the consequences. Especially in Silicon Valley, Botta said, “It is a very closed valley, and if you attack one of the four (auditing firms), the other three act similarly. They can pretty much cut your employment opportunity to the ground because when hiring people coming from the big four, they always know somebody there, and they call. They will ask, and if you antagonize them, you are killing your career for good.”
Why do it then? What made him step forward when everyone else did not? Botta said, “I thought about it, and my first advantage is I am single, I do not have a family. So I did not have the dilemma of, ‘do I want to put my family through this?’ It was just me; it is still just me.” Botta continued, “I was known when I was at PwC for my ethics and integrity, and for me, you know, I hold those values very dear to my heart, and it was a simple matter of conscience. From my perspective, I did not have a choice to make; simply, it was what I had to do. Silence was not an option for me.”
Botta’s upbringing also contributed to his strong ethics. His parents were a strong influence, as were some television programs. One program that promoted values was Star Trek. “The show teaches good values,” said Botta. It has stayed with him ever since. Even in school, Botta felt he had to follow through on his values, and he stated, “If you are a person of ethics and integrity, you cannot close your eyes, not even once. I was never able to make compromises with my conscience.”
Botta stated that he did not know how vicious and devious PwC would be, even after being terminated. He did not realize how much “power, just by fear, that these organizations have.” He did not foresee the personal toll whistleblowing would take. “However,” Botta stated, “if I had to go back, I would have to do the same thing; I do not regret for a second what I have done. Even with how much it has cost me, I have no regret for what I have done.”
Botta stated that in 2016, the SEC did not even respond to him, so in 2017 he reached out to Senator Diane Feinstein (D-CA). Feinstein’s office was instrumental in getting the SEC to open an investigation of Botta’s claim.
Botta has not heard back from the SEC since he filed his complaints, but PwC was informed that the SEC was not opening an investigation. Botta appealed to the SEC under the Freedom of Information Act (FOIA), and the administrative appeal noted they would address the issue in mid-2023.
Botta did file a civil action against PwC, protecting him against retaliation in fraud cases, 18 USC S. 1514A. PwC asked the court for Summary Judgement, and on June 27, 2019, it was denied in the United States District Court, Northern District of California. Botta’s civil action trial is scheduled for April 26, 2021.